Vestager stands strong

EU Commissioner for Competition Margrethe Vestager gives a press briefing following the European Union's decision to nix a railway merger of Germany’s Siemens and its French competitor Alstom in Brussels, February 6, 2019.

The European Commission killed off a highly anticipated Siemens-Alstom merger on February 6 and effectively nixed a FrancoGerman partnership that promised to deliver an “Airbus on Rails” business model for what would have been one of theindustries’ largest companies.

The decision has significant policy implications as it sends a clear signal that the prerogative of maintaining European dominance over a specific manufacturing sector does not justify the emergence of monopolies. Following this line of thinking, the consolidation of key manufacturing sectors from shipbuilding to defence is now called into question.

In this specific merger, Competition Commissioner Margrethe Vestager resisted the emergence of a near monopoly in the European market for signaling systems and very high-speed trains.

The German and French governments reacted furiously to the Commission’s decision and are calling for a more hands-on industrial policy of “European Champions” that will keep Chinese competition at bay.

Commissioner Vestager did not dismiss the need for the consolidation or regimentation of European manufacturing. but drew a red line when it comes to a blatant anti-trust policy.

The merger between Alstom and Siemens would have given rise to the second biggest train-manufacturing company in the world, with a combined turnover of €15 billion a year and 62,000 employees. The merger would also have given Germany’s Siemens a controlling stake over a French manufacturing icon that has developed the now-internationally famous high-speed TGV trains and is a leader is cell fuel technology.

Defending Anti-Trust Policy

“If companies want to merge, they can do so if they offer remedies just like Siemens and Alstom should have done,” Vestager said, underscoring the objections raised by market stakeholders.

“Remedies” is the term used for selling off assets that prevent companies from establishing a monopoly. Following the Commission’s decision, Vestager argued that the two companies offered to sell off assets corresponding to just 4% of their market shares, which compares poorly with the 12% market selloff that allowed her to authorise the massive Monsanto-Bayer merger in May of last year.

The governments of France and Germany were incensed by Vestager’s decision as the two had put their full political weight behind the approval of the Siemens-Alstom merger.

The argument put forward by Paris and Berlin is that China’s state-owned Railway Corporation (CRRC) has a 75% share of the global market and the EU needs a champion to consolidate leadership in the very-high-speed railway sector.

The term “European champion” for the merger originated with Siemens CEO Joe Kraser, who in September 2017 argued that the sector needed “a new European champion in the rail industry for the long-term,” raising the alarm of competition by China.

Kaeser challenged Vestager’s view on Twitter, suggesting that it is “absolutely naive” to believe that national EU companies can stand up for themselves against Chinese competition, which often has the full support of the state.

In solidarity with Vestager, Enlargement Commissioner Johannes Hahn told his colleagues that “If Siemens makes trains the way it does lobbying, I won’t sit in on of its trains ever again.”

The European Commission noted that CCCR’s revenue comes mostly from the domestic market (90%) and only 9% from exports. In a speech in Berlin on January 9, Vestager rejected the argument that China’s drive to dominate high-value manufacturing justifies the elimination of the EU’s anti-trust regulation.

Vestager reiterated her position in the wake of the landmark decision on February 6, making the case that the merger would have “reduced competition significantly and harmed European customers.” In doing so, she echoed the position of national competition authorities in the UK, The Netherlands, Belgium, and Spain. Their view of the deal was bolstered by Germany’s independent regulator, Bundeskartellamt, which was one of five national antitrust authorities to express similar concerns.

Maria Demertzis, the Deputy Director of the Brussels-based think tank Bruegel, told New Europe that the challenge at hand is balancing competition rules with the need to ensure a level playing field for the bloc’s companies as Chinese firms enjoy state aid that gives them an “unfair advantage.”

Ensuring that EU law applies to all market stakeholders requires vigilance but also new instruments. “We do not have instruments at hand to do this right now, but I certainly think this should be the way forward,” said Demertzis, who added, “What we should not do is compromise on the way that we have decided to protect consumer welfare,” Demertzis said in support of Vestager’s decision.

Championing a European industrial policy

Angered by the Commission’s veto, France’s Finance Minister Bruno Le Maire called Vestager’s decision an “economic mistake,” adding that the decision “will only serve the interests of China.”

“European competition rules need to be revised,” Le Maire said. “In the weeks to come, my German counterpart, Peter Altmaier, and I are going to make proposals aimed at a much more ambitious industry policy. I hope we will consider that the pertinent market for analysing competition is the world market and not the European market.”

In a statement to New Europe on February 7, an EU official confirmed that the Commission is open to a debate on competition policy, and quoted Vestager about the need to balance “an effective industrial policy and competition enforcement.”

Germany pushes for interventionist policy

On the eve of the Commission’s decision, Germany’s Altmaier announced a new law that would give his government not only a veto over non-EU takeovers but also the ability to step in a nationalise a company.

“It can go as far as the state taking temporary stakes in companies – not to nationalise them and run them in the long run, but to prevent key technologies being sold off and leaving the country,” Altmaier said.

This law makes up a significant part of the German “National Industrial Strategy 2030” agenda, which affirms Germany’s commitment to manufacturing, with the government in Berlin hoping to maintain and increase the role of high-value manufacturing from 23.4% today to 25% of the GDP by 2030.

During a press conference prior to the Commission’s rejection of the deal, Altmaier spelled out the sectors that Germany is determined to defend, vis-à-vis China, including steel and aluminum, chemicals, machine and plant engineering, optics, autos, medical equipment, Green technologies, defense, aerospace and 3D-printing.

Earlier this year, the German government blocked a Chinese takeover of two strategic companies, namely Berlin’s power grid (50Hertz) and the Leifeld engineering company. Leifeld is linked to aerospace and nuclear technology.

This was the first German government veto on Chinese investment. Current legislation allows the government to block takeovers of more than 25% of a company by a non-EU company.

In 2017 alone, there were 54 Chinese takeovers in Germany, valued at just under €12 billion.

Beyond takeovers, a number of major German corporate actors have signed strategic alliances with Chinese firms that may include technology transfers, including BASF, BMW, Volkswagen, Daimler, Siemens, and Bosch.

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